The American Institute of CPAs® is calling on Congress and the Trump administration to take nine key steps to protect U.S. businesses and employees struggling due to the impact of the coronavirus (COVID-19) on the economy.
In speaking with CPA firms, businesses and AICPA® members across the country, the AICPA identified the below actions as most urgent and necessary for the following groups. Note that the information on current federal activity is current as of the publication time of this blog (24 March 2020, 9am ET).
1. Suspend all required debt payments, including principal and interest, for mortgages and small and medium-sized business loans.
Further, the government should ease bank capital and provisioning requirements during the crisis and should establish a federal guaranty program so that banks do not have to set aside capital or recognize losses.
Current federal activity — Consideration is underway for a third stimulus bill to address the economic fallout from the coronavirus outbreak. The Senate “Phase III” legislation creates a fund for small-business relief. The fund will provide federally backed loans to forgive debts such as mortgages or other payments. If employers keep their workers on the payroll, the loans don’t need to be repaid. The House introduced legislation that would suspend the requirement to pay Small Business Administration (SBA) loans for six months, as well as establishes grants and additional disaster loan opportunities for small businesses that can demonstrate harm.
Notably, the Senate bill also allows for a six-month delay of repayment for federal student loans and allows the Secretary of Education to extend that for an additional three months. This bill is currently under Congressional consideration.
Finally, the Federal Housing Finance Agency ordered lenders to offer reduced payments or — in some cases — a pause on mortgage payments. Assistance requires outreach to the mortgage servicer based on the customer’s situation.
2. Waive all loan covenants for six months.
Additionally, the AICPA recommends waiving any fees or additional charges associated with loan covenant violations, waivers and credit agreement modifications.
Current federal activity — None, although other groups have advocated for similar measures. The Bank Policy Institute has urged the Federal Reserve to ease capital requirements and pull back on stress testing during the pandemic period. Additionally, prudential regulators are encouraging banks to lend to lower-income Americans. In a joint statement, the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC) said increased access to income by lower-income individuals would reflect well on the banks’ CRA score.
3. Allow three-year net operating losses (NOLs) carrybacks.
A depreciation carryback can be monetized more quickly, giving businesses faster access to much-needed money to continue operations.
Current federal activity — Sen. McConnell’s Phase III bill includes a provision temporarily suspending the existing NOL rules and allowing for carrybacks.
4. Establish a federal payroll grant to fund small business.
Small businesses are the heart of the American economy, but many are struggling to make payroll as the country takes the necessary steps to address the coronavirus pandemic. The AICPA is leading a coalition urging the Trump administration and Congress to create a payroll fund that can be distributed to small businesses.
Current federal activity — Efforts within the administration are ongoing to create a payroll mechanism to rapidly inject capital into the economy.
5. Freeze rent or mortgage payments.
If a small business is shut down, its rent or mortgage payments should be frozen until they can re-open for business. This would keep cash available to small businesses that may need immediate funds elsewhere.
Current federal activity — Sen. McConnell’s and Speaker Pelosi’s Phase III bills each include Small Business Administration loans for businesses with 500 or fewer employees, and these loans may be used to pay mortgages or rent. Additionally, if an employer retains employees from March 1, 2020, through June 30, 2020, the portion of the loan used for payments on pre-existing debt will be forgiven. The House bill would also create a fund to assist homeowners with mortgage and utility payments.
Finally, the U.S. Department of Housing and Urban Development is suspending foreclosures and evictions for mortgages insured by the Federal Housing Administration.
6. Provide relief from banking and credit card payments.
Similarly, to keep cash in the hands of small businesses, all debt and credit card payments should be frozen.
Current federal activity — The two stimulus bills signed into law (H.R. 6074 and H.R. 6201) do not address bank or credit card payments. The third stimulus bill, which is rapidly evolving in the Senate, does not directly address banking and credit card payments.
Outside of government action, many credit card companies and larger financial institutions are encouraging customers to call and discuss options. American Express, Capital One, Citi, Apple Card and Bank of America are allowing customers affected by COVID-19 to skip March payments, but customers must call the company to get details, as not all companies are allowing skipped payments without accruing interest.
7. Expand access to unemployment benefits.
Congress should increase federal support to states’ unemployment programs. Additionally, states should lower restrictions to provide employees with a quick route to these benefits. The Administration and states should also allow companies to supplement unemployment with wages to ensure employees have enough funds to meet their needs.
Current federal activity — The Phase II bill that the president signed into law provides $1 billion in emergency grant funding to states for processing and paying unemployment insurance (UI) benefit activities. Half of that funding would be allocated toward staffing, technology, systems and other administrative costs, while the other half would be for emergency grants to states that experienced a 10% or more increase in unemployment.
Sen. McConnell’s Phase III bill provides funding to pay for the first week of unemployment benefits if a state decides to pay a recipient as soon as they are unemployed rather than waiting a week until they are eligible for benefits.
The House and Senate bills provide an additional $600 per week for recipients and 13 weeks of benefits for a recipient after state unemployment is no longer available.
The House and Senate Phase III bills provide funding for short-term compensation in which rather than laying off employees, an employer reduces hours and the employee receives pro-rated unemployment benefits. The bill provides 100% of the costs for short-term compensation.
8. Support employees in the hospitality industry.
The hospitality industry has been one of the hardest hit by the current economic situation. U.S. Travel estimates the industry will lose $355 billion, 4.6 million employees will be out of work, and unemployment will rise to 6.3%. Large companies, trade and professional associations and unions should be allowed to create a charitable fund for these employees. Funds should enable both companies and individuals to submit donations that help employees who are no longer get a paycheck, and organizations should be allowed to report these donations as a general business deduction.
Current federal activity — The hospitality industry has called for a major cash infusion from the federal government — $100 billion to retain workers and $50 billion to service debt. Neither the Senate nor the House “Phase III” bills under consideration specify assistance to the hospitality industry. The Senate bill provides $425 billion in loans, loan guarantees and investments using the Federal Reserve’s lending mechanisms to eligible businesses, states and municipalities to aid distressed sectors of the economy. The House legislation has several provisions directed at small businesses affected by the crisis, including $100 billion in grants, $200 billion in zero-interest, zero-fee loans, $7 billion in low-interest loans, and debt relief from SBA loans.
To date, there have not been any policy proposals to create charitable funds for hospitality industry employees.
9. Expand access to 401(k) assets.
The administration should:
- Forgive the 10% early withdrawal penalty on 401(k) early distribution in 2020;
- Allow for repayment within one year rather than 60 days, with no penalty or interest;
- Waive the contribution limitation on funding 401(k) plans back to regular levels (before the administration’s declaration of a national emergency); and
- Allow the pandemic to quality as an automatic “triggering event” for 401(k) loans.
Current federal activity — Both the Senate and House “Phase III” bills include provisions to provide access to certain retirement fund assets. The Senate bill waives the required minimum distribution rules for certain defined contribution plans and IRAs for calendar year 2020. The House bill waives the 10% early withdrawal penalty for distributions, allows individuals three years to repay distributions and include those distributions in income ratably over three years, increases loan limitations to the lesser of $100,000 or 100% of participants’ vested balance and extends loan repayment start dates to begin after one year.